EC blocks Deutsche Börse merger with NYSE Euronext

The European Commission has stopped the planned merger of Deutsche Börse and NYSE Euroenext on grounds it would limit competition, particularly in trading of European financial derivatives.

“Together, the two exchanges control more than 90% of global trade in these products. The Commission’s investigation showed that new competitors would be unlikely to enter the market successfully enough to pose a credible competitive threat to the merged company. The companies offered, in particular, to sell certain assets and to provide access to their clearinghouse for some categories of new contracts, but overall, the commitments were inadequate to solve the identified competition concerns,” the EC said in a statement.

“Eurex, operated by Deutsche Börse, and Liffe, operated by NYSE Euronext, are the two largest exchanges in the world for financial derivatives based on European underlyings. They compete head-to-head and are each other’s closest competitors.”

Allowing the merger to go ahead would have created a “quasi-monopoly” in this area, ultimately harming users of derivatives, the EC said.

Below follows a summary of the Commission’s conclusions supporting its position:

1. Relevant market

The Commission’s analysis focused on the effects of the proposed merger on the markets for European financial derivatives (European interest rate, single stock equity and equity index derivatives) traded on exchanges. It did not identify any significant competition issues in other areas, such as cash listing, trading and post-trading activities.

Derivatives are financial contracts whose value is derived from an underlying asset (e.g. interest rate, equity). They are used by companies and financial institutions to manage financial risk. They are also used as an investment vehicle by retail and institutional investors – including mutual and pension funds investing on behalf of final consumers. See MEMO/12/60

Derivatives can be traded on exchanges or “over-the-counter” (OTC). Exchange-traded derivatives (ETDs) are highly liquid, relatively small size (around €100 000 per trade) and fully standardised contracts in all their legal and economic terms and conditions. In contrast, OTC derivatives typically concern much bigger contracts (around €200 000 000 per trade) that allow customisation of their legal and economic terms and conditions. The investigation showed that ETDs and OTCs are generally not considered as substitutes by customers, since they use them for different purposes and in different circumstances. Some users of exchanges are also not authorised by their mandates to operate in the OTC market due to risk management considerations.